Electrolux, the Swedish home-appliance manufacturer, has released its results for the second quarter. Despite facing various challenges, the company remains focused on strategic portfolio management.
Net Loss
Electrolux experienced a significant swing in fortunes, recording a net loss of 648 million Swedish kronor ($63.1 million) for the second quarter. This was a sharp decline from the profit of SEK257 million achieved in the same period last year. The loss was primarily attributed to lower volumes resulting from weaker market demand, currency headwinds, labor cost, and energy inflation. A FactSet poll had anticipated a net profit of SEK350 million.
Sales Performance
During the second quarter, sales dipped by 3.2% to SEK32.65 billion compared to the expected SEK34.05 billion. While falling short of consensus, the company remains optimistic about future growth prospects.
Divestment Plans
In an effort to streamline its operations and strengthen its core business, Electrolux has commenced preparations for potential divestments in the coming years. This strategic move may involve selling off non-core assets such as Zanussi and others, which could generate an estimated SEK10 billion. The divestment would include production facilities in Egypt responsible for manufacturing Zanussi-branded major appliances, as well as water heater production facilities in Egypt and South Africa. These brands and the water heater category accounted for approximately 5% of group net sales in 2022. CEO Jonas Samuelson emphasized the need to prioritize focus and strategic portfolio management in the current challenging macro environment. He also highlighted ongoing evaluations aimed at simplifying the company’s structure and reducing complexity.
Electrolux’s second-quarter results reflect the company’s proactive approach towards overcoming challenges and ensuring long-term success.
Cost Inflation
Electrolux anticipates negative external factors for the year, driven by various elements such as raw material costs, energy costs, trade tariffs, direct and indirect currency impact, and labor cost inflation exceeding 2%. Despite raw material costs remaining neutral in the second quarter, the company experienced a decline in currency value and continued to face higher inflation from labor and energy compared to the previous year. Nonetheless, Electrolux managed to counterbalance a significant portion of these headwinds through appropriate pricing strategies.
Margins
The adjusted operating margin for Electrolux in the second quarter was 1.6%, slightly lower than the previous year’s 1.7%. The implementation of the group-wide cost reduction initiative and the North America turnaround program had a positive impact on operating profit, amounting to approximately SEK1.6 billion. This was achieved through enhanced cost efficiency, reduced investment in innovation and marketing activities. However, the challenging market environment persisted with reduced consumer purchasing power leading to a shift towards lower-priced products. While price increases partially contributed to the quarter’s performance, there was a significant increase in earnings promotions. As a result, Electrolux now foresees a negative net price effect starting from the third quarter.
Electrolux Expects Negative Demand for Core Appliances in 2023
Electrolux, a leading appliance manufacturer, has revised its expectations for core appliance demand in 2023. Previously, the company anticipated a neutral development in the Asia-Pacific, Middle East, and Africa region, but now it projects negative demand for all regions.
While the volume and mix of sales in 2023 are still expected to have a negative impact on earnings, pricing adjustments will partially offset external factors. Electrolux also announced positive news regarding its cost-reduction plan and North American turnaround program. These initiatives are now projected to contribute at least SEK5 billion to earnings in 2023, up from the previous estimate of SEK4 billion-SEK5 billion.
Additionally, the company has adjusted its capital expenditure forecast for the full year 2023. It now expects to invest SEK6 billion instead of the previously estimated range of SEK6 billion-SEK7 billion.
These revisions provide valuable insights into Electrolux’s projected performance in the coming years. Despite the slightly negative forecast for demand and earnings, the company’s cost-reduction plan and North American turnaround program are expected to make a positive impact.